"Many landlords have started to reassess their position in the market, with growing discussion around whether short-term holiday lets could offer an alternative route to maintain high rental yields"
- Simon Caines - BuyAssociation
Ahead of the Renters' Rights Act coming into force on Friday, landlords are reassessing their rental strategies, weighing a move between traditional long-term lettings and short-term rentals.
Tighter rules in the private rented sector are reducing flexibility for landlords, while increased scrutiny on holiday lets, particularly in tourist areas, is making them a less straightforward alternative. Short-term lets have risen 4% year on year, but experts warn the window to adapt is closing, leaving landlords under pressure across both markets.
Simon Caines, property expert at BuyAssociation, says investors need to navigate the new rules carefully to maintain rental yields amid the shifting landscape.
"The Renters' Rights Act has already been reshaping the private rental sector in recent months, with much of the focus being on the 'no-fault' eviction legislation, reducing flexibility in the long-term lettings market," he said.
"As a result, many landlords have started to reassess their position in the market, with growing discussion around whether short-term holiday lets could offer an alternative route to maintain high rental yields. However, this is not a straightforward switch, as the government is also signalling a crackdown on landlords converting residential housing, particularly in tourist areas, into short-term rentals."
That crackdown brings additional complications. "This adds another layer of complexity for landlords considering a move into short-term lets, with stricter council tax rules and tighter criteria on how long a property must be let to qualify," Caines explained.
The financial case for holiday lets has also weakened. "Landlords can no longer fully offset mortgage costs for holiday lets unless operating via a company structure, further squeezing profits," he noted. "As a result, returns are already less attractive than they once were."
Combining that with long-term letting restrictions creates a more difficult environment for portfolio decisions. "When this is combined with tighter rules on long-term lets, it creates a more challenging environment for investors and landlords when deciding where to position their portfolios," he added.
Rather than pivoting to short-term rentals, Caines argues landlords would be better served by targeting cities with strong fundamentals. "Investors would be better off instead shifting their focus to areas that still offer strong and sustainable yields," he said.
"For example, cities such as Manchester and Liverpool, where significant investment is being made in housing, transport links and employment opportunities, are likely to see increased and sustained tenant demand. This could ultimately deliver higher and more consistent rental yields over the long term than short-term lets once did."
Adaptability will be key for those looking to maintain returns as the sector continues to evolve. "Investors who are adaptable, plan carefully, and target high-demand areas with stable tenant profiles, while aligning with evolving regulations, are far more likely to achieve sustainable returns in the year ahead despite ongoing changes," Caines said.
"The key, however, will be adapting early. The rental sector is becoming more professionalised by the day, and landlords who treat it as a long-term investment rather than a short-term asset are the ones most likely to succeed."
